Debt, deficits and finite horizons: the stochastic case

Roger Farmer, Carine Nourry and Alain Venditti

Working Papers from HAL

Abstract: We introduce aggregate uncertainty and complete markets into Blanchard's (1985) perpetual youth model. We show how to construct a simple formula for the pricing kernel in terms of observable aggregate variables. We study a pure trade version of our model and we show it behaves much like the two-period overlapping generations model. Our methods are easily generalized to economies with production and they should prove useful to researchers who seek a tractable stochastic model in which fiscal policy has real effects on aggregate allocations.

Keywords: Overlapping generations; indeterminacy; sunspot equilibria; aggregate uncertainty (search for similar items in EconPapers)
Date: 2009
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00439336v1
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Journal Article: Debt, deficits and finite horizons: The stochastic case (2011)
Working Paper: Debt, Deficits and Finite Horizons: The Stochastic Case (2009)
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